Mutual Funds are permitted to invest in overseas securities which also includes investment in overseas Mutual Funds/Unit Trusts (‘MF/UTs’).
In order to facilitate ease of investment in overseas MF/UTs, to bring transparency in the manner of investment, and to enable Mutual Funds to diversify their overseas investments, the following has been decided based on feedback received from the industry, consultation with Mutual Fund Advisory Committee and public consultation:
Investment Guidelines:
Indian Mutual Fund schemes can invest in overseas MF/UTs, provided these do not exceed 25% exposure to Indian securities.
When investing in such MF/UTs, the Indian Mutual Fund schemes must ensure:
Pooling: The MF/UT pools contributions into a single vehicle, with no segregated portfolios.
Pari-passu & Pro-rata: Investors share returns proportionately, with no distinct investor-specific portfolios.
Independent Management: An autonomous investment manager oversees the overseas MF/UT, avoiding direct or indirect influence.
Public Disclosure: The MF/UT discloses portfolios at least quarterly.
No Advisory Agreement: No advisory agreement between the Indian Mutual Fund and the overseas MF/UT to avoid conflicts of interest.
Monitoring and Rebalancing of Investment Exposure:
At the time of investment, the Indian Mutual Fund must confirm that the overseas MF/UT’s exposure to Indian securities remains within the 25% limit.
If the exposure exceeds this limit, a 6-month observance period is allowed to monitor rebalancing by the MF/UT.
During this observance period:
No additional investments can be made in the MF/UT.
Investment may resume if the exposure falls back below the 25% limit.
If the MF/UT does not rebalance within the observance period, a further 6-month liquidation period is provided to the Indian Mutual Fund scheme to exit the investment.
Non-compliance Consequences:
Failure to comply with rebalancing requirements will result in restrictions on fresh subscriptions, the launch of new schemes, and levy of exit loads.
Exemptions from Fundamental Attribute Change:
Indian Mutual Fund schemes do not require a fundamental attribute change if they need to shift investments to another MF/UT due to the overseas MF/UT’s exposure breaching the 25% limit, provided the objectives align, and investors are notified.
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